Rail sweeteners will not worry Brussels

If Clare Short, Labour's new transport front-bencher, expects help in the fight against rail privatisation from her former colleague, Neil Kinnock, she will almost certainly be disappointed. To believe the headlines, Mr Kinnock could prove a big stumbling-block. The truth, however, is that the Brussels transport commissioner has already put the issue in a file marked boring and routine. Colleagues make clear he is showing no signs of turning it into a cause celebre l ike his battle with the Spanish government over the rescue of the airline Iberia.

The idea that subsidies for a privatised railway are different from the money already funnelled in huge quantities to the existing state-owned companies is plain daft in a Europe where unsubsidised railways are as common as unicorns. Approval from Brussels is necessary, because the subsidies will be going to private firms and will almost certainly rise for the first year or two. But it is hard to see approval being long delayed.

A rather subtler point Mr Kinnock must deal with is whether new guarantees given to the three-rolling stock leasing companies, after they are privatised, will amount to state aid, and if so whether the guarantees distort the transport market. The issue arises because the potential new owners of the Roscos, for which bids thought to be worth pounds 1.7bn-pounds 1.8bn are on the table, have been offered two sweeteners.

The first is a contractual commitment by the Government to pay part of the cost - but less than 100 per cent - of modifying existing rolling stock if the safety authorities demand improvements. Here again, it is hard to see why Brussels would need to interfere. Since the Government already owns the Tocs and is responsible for the entire safety bill the new arrangements simply switch some of the existing risk onto the private sector. The potential cost to the state will as a consequence fall.

The second sweetener is a guarantee from the Government that in the event of insolvency among the Roscos' customers, the state will pay up to 80 per cent of the lost rental income on the rolling stock. The rationale for this is that is that since the Roscoswill be sold next month before the train operating franchises have been let, their new owners can know nothing of the financial viability of new private sector customers and need protection as a consequence.

Neither sweetener appears to increase the financial risk to taxpayers after privatisation, and it is even harder to see how they could distort the transport market. There is plenty wrong with rail privatisation, but Labour is barking up the wrong tree on this one.

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